Tenants sought a hearing to determine reasonable attorney fees pursuant to an Appellate Term decision that found they were successful in defending a holdover proceeding, thus were entitled to recover attorney fees reasonably incurred in defending the action. An inquest was held and landlord Engel sought to vacate the inquest citing health issues, including having an emergency tolerance test on the date of the hearing.

The court noted despite Engel's statements that his prior attorney, Brookstone, was discharged and not authorized to proceed in Engel's absence, he then argued Brookstone's decision to leave and not defend the hearing was due to law office failure. Such inconsistency was unexplained, but the court found the various dates of motion practice put Engel on notice of the impending fees hearing prior to his medical test. It ruled Engel's motion failed to show a meritorious defense sufficient to vacate the default, denying same. Further, tenants, as the prevailing parties, were entitled to an award of legal fees, and the court found their attorney's hourly rates for the work completed reasonable. However, it reduced certain amounts for "ancillary expenses and redundancies," granting tenants $115,002.16.

DECISION/ORDER

Upon the foregoing cited papers, the Decision/Order on this motion is as follows:

Respondents brought a motion for legal fees (seq 006), which resulted in an inquest, held January 8, 2013. Petitioner subsequently brought a motion to vacate the inquest (seq 007). Both motions are consolidated herein for purposes of this decision.

BACKGROUND

Respondents' motion for legal fees, made returnable December 12, 2012, sought a hearing to determine reasonable legal fees pursuant to an Appellate Term decision, dated October 25, 2012, which modified the decision of the lower Court and remitted the case for a hearing finding that, "[a]s tenants were successful in defending this holdover proceeding, the proceeding having been discontinued with prejudice, the 'controversy' over whether tenants' apartment is rent stabilized has reached its 'ultimate outcome'…Thus, tenants are entitled at this juncture to recover so much of their attorney's fees as were reasonably incurred in defending this holdover proceeding (citation omitted)." (Engel v. Wolfsohn & Kellogg, 38 Misc 3d 17 [App Term, 2nd, 11th & 13th Jud Dists 2013]). On the return date, petitioner's application to adjourn the legal fees hearing was granted, over respondents' objection, and the hearing was adjourned to January 8, 2013.

On January 8, 2013, petitioner's attorney, Mr. Brookstone, made another application before the Court, stating that he had been discharged by his client, that he was not authorized to appear in his client's absence, and that he believed that a new attorney was taking over the case. However, despite having been granted a prior adjournment, neither the petitioner nor his alleged new attorney appeared, no notice of substitution or discharge was presented to the Court, and no motion to be relieved was filed by Mr. Brookstone. Nevertheless, the Court gave Mr. Brookstone time to get more information about the whereabouts of petitioner or petitioner's alleged new attorney, and, thereafter, commenced the hearing (digitally recorded, FTR room 505, start at 11:22AM). Mr. Brookstone did not remain for the hearing/inquest.

INQUEST ON RESPONDENTS' MOTION FOR LEGAL FEES

Michael Wolfsohn testified that he and his partner, Jessica Kellogg, were the respondents in this proceeding and that he had retained Kenneth B. Hawco as their attorney. The retainer agreement, dated November 10, 2008, was introduced in evidence (respondents' A) and states that "although Mr. Hawco's usual hourly fee is $350.00 per hour" (paragraph 5), respondents would only have to pay a flat fee of $2000.00, subject to various contingencies (paragraph 8 ). Mr. Wolfsohn testified that he chose the flat fee and potential future reimbursement, over an hourly rate, because he did not have the funds for an hourly rate agreement. Additionally, Mr. Wolfsohn testified that he hired Mr. Hawco to appeal the lower Court's decision and introduced a second retainer agreement, dated October 29, 2010, which noted Mr. Hawco's hourly rate of $450.00 for the appeal (respondents' B).

Respondents' attorney, Kenneth B. Hawco, testified as to his education, employment and experience in the law, and submitted his Curriculum Vitae in evidence (respondents' C). Mr. Hawco testified as to his twenty-one years in practice, eighteen of which have been as a sole practitioner, mostly for tenants in Housing Court. Mr. Hawco further testified that he does all his work without assistance and introduced his contemporaneous time records for the legal fees incurred in the Housing Court case (respondents' D) and the appeal (respondents' G). A Document Index (respondents' F) was also submitted.

Additional time Mr. Hawco spent on the prior action between the parties, on negotiating with petitioner prior to the commencement of this action, and on a pre-answer motion to dismiss, was not billed (respondents' D, 1st & 2nd pages). Mr. Hawco testified that all his bills were provided to petitioner's attorney on December 10, 2012, in order to allow petitioner and his attorney an opportunity for review (respondents' E).

Mr. Hawco testified that his calculations included a reasonable rate of $350.00 per hour for the Housing Court case, totaling $92,907.63, and $450.00 per hour for the appeal work, totaling $41,599.04, for a grand total of $134,506.67. Mr. Hawco further testified that he had worked on this case, as well as the appeal, for over four years, that petitioner had three different attorneys throughout the case, and that petitioner was litigious, necessitating over 300 hours of legal fees, including the filing of eight stipulations, nine affidavits, twenty-eight exhibits, six memorandum of law, six Court orders, and two appeal briefs. Additionally, Mr. Hawco introduced a copy of the E-Courts 'appearance information' print out from this case indicating forty-five (45) court appearances between November 13, 2008 and January 8, 2013 (respondents' H).

Mr. Hawco argued that the Court should use an alternative calculation, at a higher rate than $350.00 per hour for his work in the Housing Court case, due to the number of years the case took to complete, his extensive experience, and the financial risks he faced. In support of this alternative calculation. Mr. Hawco submitted three exhibits calculating his attorney's fees as follows: $134,506.67 at a rate of $350.00/hour (respondents' I); $147,627.63 at a rate of $400.00/hour (respondents' J); and $163,389.55 at a rate of $450.00/hour (respondents' K).

PETITIONER'S MOTION TO VACATE DEFAULT

At the conclusion of the January 8, 2013 inquest, the Court reserved its decision, expecting that an imminent order to show cause would be filed by petitioner or petitioner's new attorney. However, the order to show cause by petitioner's new attorneys was not filed until February 21, 2013, and a further request for an adjournment was sought since respondents had not received a full copy of petitioner's motion. On April 15, 2013, the parties argued petitioner's motion to vacate the January 8, 2013 inquest (digitally recorded, FTR Room 602, start at 11:40AM).

After considering the arguments, document, and evidence submitted by the parties, the Court finds as follows:

The affirmation of petitioner's new attorney and the affidavit from petitioner inform the Court that petitioner had suffered health problems, including two strokes, for over twenty years, and had an emergency exercise tolerance test on January 8, 2013, the date of the hearing. An affidavit from petitioner's physician confirmed petitioner's health problems, as well as the emergency test given to petitioner on January 8, 2013. Petitioner's affidavit further notes that prior to the January 8th hearing, he had attempted to discharge his attorney, Mr. Brookstone, and retain a new attorney, but was unable to formally do so due to his medical issues. Specifically, petitioner's affidavit states that he had verbally informed Mr. Brookstone that he was discharging him from the case and that Mr. Brookstone was not authorized to proceed in petitioner's absence. Despite these statements, petitioner's motion argues that Mr. Brookstone's decision to leave and not defend the hearing, was a result of 'law office failure' and that the Court 'should have exercised discretion in adjourning the hearing.'

Nevertheless, no affirmation from petitioner's prior attorney, Mr. Brookstone, is provided in the motion, and the inconsistency, between petitioner informing his attorney that he was not authorized to appear, while also claiming 'law office failure', is not explained.

Petitioner had sufficient time to change attorneys and to prepare for the legal fees hearing since the initial decision by the Appellate Term, remitting the case for a legal fees hearing, was rendered in October 2012, the respondents' motion for legal fees was served on Mr. Brookstone in November 2012, and the petitioner's application for an adjournment was granted, over objection, adjourning the case from December 12, 2012 to January 8, 2013. The Court further notes that these dates, all of which put petitioner on notice of the impending legal fees hearing, were all prior to petitioner's January 8, 2013 medical test.

Furthermore, as of January 8, 2013, Mr. Brookstone had not been discharged in any approved or prescribed manner and was still the attorney of record for petitioner (CPLR §321(b)). "Until an attorney of record is discharged by order of the Court or by filing of the consent of the retiring attorney and party in the prescribed form, the attorney represents the party (citations omitted)". Hawkins v. Lenox Hill Hosp, 138 AD2d 572 (2nd Dept 1988). Moreover, since petitioner's motion does not include an affirmation from Mr. Brookstone, it has not been made clear to this Court why petitioner's attorney would have been authorized in December 2012 to file a motion seeking leave to appeal the Appellate Term decision, but not authorized to submit opposition to the motion for legal fees, which was served a month earlier, in November 2012. Nevertheless, respondents include a copy of the decision, dated February 28, 2013, denying petitioner's motion seeking leave to appeal to the Appellate Division (respondent's opposition, Exhibit F).

The Court finds that petitioner's motion fails to show a meritorious defense sufficient to vacate the default or necessitate a new hearing. Other then stating that the fees requested by respondents are unreasonable, excessive and substantially above the amount paid by petitioner to his own attorneys, no specific fees are contested. (See, Unger v. Holmes Protection, Inc., 87 AD2d 589, supra; Montrose Concrete Products Corp v. Silverite Construction Co. Inc., 68 AD2d 904 [2nd Dept 1979]; and Eretz Funding, Ltd v. Shalosh Assoc, 266 AD2d 184 [2nd Dept 1999]). Petitioner's argument that the fees are excessive and that the Court should not consider fees for motions which respondents failed to win, fees for work on the appeal, and 'fees-on-fees', is insufficient to merit a new hearing since the Court is already considering the "reasonableness" of the fees sought, as part of its decision, and since "the court is itself an expert on the question and may consider its own knowledge and experience concerning reasonable and proper fees." McAvoy v. Harron, 26 AD2d 452 (4th Dept 1966), affd 21 NY2d 821 (1968). The determination of what constitutes reasonable attorney's fees "is a matter within the sound discretion of the trial court" (Shrauger v. Shrauger, 146 AD2d 955 [3rd Dept 1989], appeal dismissed 74 NY2d 844 [1989]).

Therefore, petitioner's motion to vacate the default is denied in its entirety.

Furthermore, an attorney is entitled to an additional award for time expended in seeking or defending the award on appeal and for 'fees on fees', such as fees for the time incurred proving the reasonableness of the legal fees sought. (See, NYC 107, LLC v. Clark, 31 Misc 3d 129[A] [App Term 1st Dept 2011]; and Santorini Equities Inc v. Picarra, 30 Misc 3d 136[A] [App Term 1st Dept 2011]).

Therefore, after a careful review of the history of the case and the evidence and documents submitted, including the time records submitted by respondents' attorney, and in accordance with the Appellate Term finding that respondents are the prevailing party in this 41/2-year protracted litigation, the Court finds as follows:

The Court finds respondent's hourly rate, at $350.00 for the work completed in the Housing Court Case, and at $450.00 for the work completed in its successful appeal, to be reasonable in light of the vast experience of respondents' attorney in handling Landlord/Tenant matters. The Court notes that "(a)ctual payment of attorney's fees is not a condition precedent to a tenant's recovery" (Senfeld v. ISTA Holding Co, 235 AD2d 345 [1st Dept 1997], lv denied 91 NY2d 956 [1998]), and that a party's failure to pay for legal services is not a basis for a denial of fees (Maplewood Mgt Inc v. Best, 143 AD2d 978 [2nd Dept 1988]).

However, after a review of the time records submitted, the amounts sought are hereby reduced for ancillary expenses and redundancies. Travel expenses noted in the time records (respondents' D and G) are reduced in the amount of one hour for each of the following dates:

The following dates and noted reductions in time are based upon redundancies:

10/19/09 (-3.0 hours) and 12/1/09 (-2.0 hours), including hours noted for 'review of file and research on motions to amend/supplement an answer', for which respondents time records already charge sufficient fees;

8/12/10-8/16/10 (-20.0 hours), which includes an unreasonable 28.2 hours for opposition to petitioner's motion; and

12/10/12 (-0.5) and 12/15/12-12/16/12 (-6.0), including work done by respondents' attorney for the cross-motion sought on appeal, which was ultimately denied/dismissed by the Appellate Term.

In total, the number of hours reduced from the time records submitted is 60.5 hours (of this amount, 49 hours related to the Housing Court case at $350.00 per hour, and 11.5 hours related to the appeal at $450.00 per hour). Respondents' fees are therefore reduced from 209.6 to 160.6 hours for the Housing Court case, and from 89.6 to 78.1 hours for the appeal.

Furthermore, interest is computed from the date on which the right to interest on the fees accrues, which is "the date on which the party seeking fees was determined to be the prevailing party." Solow Management Corp v. Tanger, 19 AD3d 225 (1st Dept 2005). In this matter, the fees shall be calculated from October 29, 2010, the date of the notice of entry of the Housing Court's decision allowing petitioner to discontinue the case. In its decision modifying the lower Court, the Appellate Term noted that respondents were the prevailing party upon the discontinuance of the Housing Court case.

Kenneth B. Hawco, New York City, for appellants. David E. Brookstone, Brooklyn, for respondent.

{**38 Misc 3d at 18} OPINION OF THE COURT
Memorandum.

Ordered that the order, insofar as appealed from, is modified by providing that the branch of landlord's motion seeking to sever tenants' eighth counterclaim is denied and by further providing that the branch of tenants' cross motion seeking an award of summary judgment on the issue of liability on their eighth counterclaim and to set the matter down for a hearing to determine the amount of attorney's fees to be awarded thereon is granted, and the matter is remitted to the Civil Court for a hearing to determine the amount of attorney's fees to be awarded on that counterclaim; as so modified, the order, insofar as appealed from, is affirmed, without costs.

This holdover proceeding was commenced in October 2008 following the service of a 30-day notice, upon an allegation that the apartment was exempt from rent stabilization by virtue of{**38 Misc 3d at 19} high-rent deregulation. Tenants answered, asserting that the apartment was subject to rent stabilization and counterclaiming for, among other things, rent overcharge, fraud and, as an eighth counterclaim, the attorney's fees to be incurred in defending this proceeding. In September 2009, tenants were granted leave to amend their answer to assert a tenth counterclaim, for the attorney's fees that they had incurred in defending a prior holdover proceeding that had been brought against them by landlord's predecessor in interest. The prior proceeding had been dismissed sua sponte by the Civil Court on April 29, 2008, without prejudice, based on the prior landlord's sale of the building. The dismissal order notes that tenants' counterclaims in that proceeding, which included a counterclaim for the attorney's fees which tenants had incurred in defending that proceeding, had been withdrawn without prejudice. Eight months after the prior proceeding had been dismissed, tenants moved to restore that proceeding to reinstate their counterclaim for attorney's fees, and for summary judgment on that counterclaim. By order dated July 22, 2009, the Civil Court, noting that an award of attorney's fees is generally appropriate only when a controversy has reached its ultimate outcome, that the instant proceeding had now been commenced by the current owner, and that tenants' counterclaims had been withdrawn without prejudice, determined that the final outcome of the prior litigation was not substantially favorable to either side and denied tenants' motion.

When the instant holdover proceeding came on for trial on March 22, 2010 after being marked "triple final" for that day, landlord's attorney orally moved to discontinue the proceeding, acknowledging that landlord had "no case" and "can't prevail." Tenants' attorney, noting that this was his fifteenth appearance in this proceeding over the course of a year and a half, asked the court to condition the discontinuance on landlord's payment of attorney's fees. The court declined to so condition the discontinuance, granted landlord's application to discontinue the proceeding, with prejudice, and directed that the "counterclaims stand." On May 26, 2010, when the matter came on for trial on tenants' counterclaims, tenants discontinued all of their counterclaims without prejudice except for their eighth counterclaim, for the attorney's fees they had incurred in defending this proceeding, and their tenth counterclaim, for the attorney's fees they had incurred in defending the prior proceeding. Landlord thereafter moved to, among other things, dismiss{**38 Misc 3d at 20} or sever tenants' remaining two counterclaims, and tenants cross-moved for an award of summary judgment on the issue of liability on their counterclaims and to set the matter down for a hearing to determine the amount of attorney's fees to be awarded. By order dated October 27, 2010, insofar as appealed from, the Civil Court, noting that the discontinuance of landlord's underlying proceeding had not been conditioned upon landlord's payment of attorney's fees, granted the branch of landlord's motion seeking to sever tenants' eighth and tenth counterclaims and denied tenants' cross motion. Tenants appeal from these portions of the Civil Court's order.

As tenants were successful in defending this holdover proceeding, the proceeding having been discontinued with prejudice, the "controversy" over whether tenants' apartment is rent stabilized has reached its "ultimate outcome" (Elkins v Cinera Realty, 61 AD2d 828 [1978]). Contrary to landlord's contention, this controversy is separate, for the purpose of determining tenants' entitlement to attorney's fees, from the controversy over whether there has been a rent overcharge. Thus, tenants are entitled at this juncture to recover so much of their attorney's fees as were reasonably incurred in defending this holdover proceeding. Consequently, tenants' eighth counterclaim should not have been severed and the branch of their cross motion seeking summary judgment on the issue of liability on this counterclaim and to set the matter down for a hearing to determine the amount of fees to be awarded on this counterclaim should have been granted.

Tenants' tenth counterclaim, seeking to recover the attorney's fees tenants had incurred in defending the prior owner's holdover proceeding, was not related to the current landlord's proceeding and, thus, was not properly within the jurisdiction of the Housing Part to entertain (see Town Mgt. Co. v Leibowitz, 37 Misc 3d 49 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]). Consequently, the court properly severed that counterclaim for determination in a regular part of the court and denied the branch of tenants' cross motion seeking summary judgment thereon without passing on its merits.